UC San Diego - New Study Finds Minimum Wage Reduces Employment

[Jarhyn]

Is it better to have more people working yet struggling or fewer people working at a higher standard of living. A question for the philosophers.

Yes, this is the choice. Almost nobody on the left will admit this, though, they continue to insist that it can be done basically cost-free.

no. The primary thing about wages is that the same amount of work still needs to be done. A person selling toyotas will have just as many people coming to buy his cars regardless of what he pays his workers, and so needs the same number of workers to help him. The only question is how much the glorified accountant walks away with. In fact there are a lot of really good examples like Ford which show that paying more to the workers means they'll buy MORE cars. The world has a finite amount of work that needs to be done outside the research and development markets. That amount goes up when we raise the bar for the lowest wage workers, but ultimately we will still reach 'peak labor'.

If more people are provided a higher standard of living, there Necessarily will need to be more people working to make that happen, because higher standards of living necessitate more work. Period. A higher minimum wage means more jobs. It literally CAN'T not, at least until we hit peak labor.

 

[dismal]

Is the increase in minimum wage, however, really affecting the bottom line that much? You have the existing cost for labor, which includes a lot of people not making minimum wage, your full-time staff costs you health care and FICA which can add up substantially and dwarfs a minimum wage hike, then you add the cost of equipment/services, etc... Just how much would it actually affect the outlays for a company?

It has an effect at the margin. That effect is negative.

If we raised the price of broccoli 10 cents a pound you could ask the same questions. How many people spend all that much on broccoli anyway?

But at the margin we know it will mean 1) people deciding they don't really need that broccoli after all; 2) people using a little less broccoli in their stir fry; 3) substitutes for broccoli (e.g., cauliflower) becoming more attractive options. Your demand for broccoli may be resilient for a 10 cent move but not for a $1 move. Someone else may love broccoli so much they won't bail out at a $5 move. But somewhere in the economy wide there are some people that bail out at $0.10. This is why demand curves slope downward. A higher prices causes people to do with less and or use substitutes.

 

[dismal]

no. The primary thing about wages is that the same amount of work still needs to be done.

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

 

[Jimmy Higgins]

Is the increase in minimum wage, however, really affecting the bottom line that much? You have the existing cost for labor, which includes a lot of people not making minimum wage, your full-time staff costs you health care and FICA which can add up substantially and dwarfs a minimum wage hike, then you add the cost of equipment/services, etc... Just how much would it actually affect the outlays for a company?

It has an effect at the margin. That effect is negative.

Is it non-negligible?

If we raised the price of broccoli 10 cents a pound you could ask the same questions. How many people spend all that much on broccoli anyway?

Raising it x cents means nothing when held relative to the total outlays for a company. For the record, I asked a less rhetorical question and more actually quantitative question. According to a remedial (and conservative, as in the increase wouldn't likely be as large) analysis by Motley Fool, doubling the minimum wage would increase the price of food by 27.3%. So a $6 meal would become about $7.60.

That is if you double minimum wage. Let me say that again... double minimum wage! Food and drink price increases have been outpacing minimum wage increases for the last couple of decades. So even just jumping up the price to break even, wouldn't make a huge dent in costs at the register.

But at the margin we know it will mean 1) people deciding they don't really need that broccoli after all; 2) people using a little less broccoli in their stir fry; 3) substitutes for broccoli (e.g., cauliflower) becoming more attractive options. Your demand for broccoli may be resilient for a 10 cent move but not for a $1 move. Someone else may love broccoli so much they won't bail out at a $5 move. But somewhere in the economy wide there are some people that bail out at $0.10. This is why demand curves slope downward. A higher prices causes people to do with less and or use substitutes.

Unless it is an Apple product... and then they swoon to it.

 

[coloradoatheist]

So the better number Jimmy is to multiple the raise times 2,000 times the number of employees. For a 7/11 store that employees 10 people a $1 hr raise would be a minimum of an extra $20K cash outlay. With the other taxes it approaches $30K. So the issue is how much extra padding do normal businesses have and can afford?

 

[dismal]

It has an effect at the margin. That effect is negative.

Is it non-negligible?

Considering the minimum wage has historically been kept below the market clearing rate for unskilled labor small movements tend to have a small marginal effect.

 

[ksen]

no. The primary thing about wages is that the same amount of work still needs to be done.

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

 

[coloradoatheist]

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

A company is never that completely static, but changes that be looked at.

1) Outsourcing
2) reducing staff...asking more unpaid overtime
3) Mechaniing

What it does depends on several items.

 

[Jimmy Higgins]

So the better number Jimmy is to multiple the raise times 2,000 times the number of employees. For a 7/11 store that employees 10 people a $1 hr raise would be a minimum of an extra $20K cash outlay. With the other taxes it approaches $30K. So the issue is how much extra padding do normal businesses have and can afford?

Padding? Or how well can it be spread around. The Motley Fool example seems to indicate for McDonalds, you could double minimum wage, spread that increase across the entire McDonald's labor force and you'd still only increase the price of food products by 27%.

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

Lets just assume equal production under both models. This would also ignore worker morale increase as well, being paid more. People working at McDonalds can only fulfill as many orders as come to their place of business.

 

[coloradoatheist]

Padding? Or how well can it be spread around. The Motley Fool example seems to indicate for McDonalds, you could double minimum wage, spread that increase across the entire McDonald's labor force and you'd still only increase the price of food products by 27%.

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

Lets just assume equal production under both models. This would also ignore worker morale increase as well, being paid more. People working at McDonalds can only fulfill as many orders as come to their place of business.

That's also based that the only affect is on McDonalds workers, and not the other costs of McDonalds. Can the supplier of the buns absorb the cost that equally. The costs move through the system and it's where the new equilibrium is established.

 

[Nice Squirrel]

The supplier of the bun? You mean McDonalds?

 

[coloradoatheist]

The supplier of the bun? You mean McDonalds?

Or whatever the costs that come into McDonalds. I am not sure what percentage of their costs are their direct employee expenses.

 

[ksen]

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

A company is never that completely static, but changes that be looked at.

1) Outsourcing
2) reducing staff...asking more unpaid overtime
3) Mechaniing

What it does depends on several items.

None of which changes the work that needs to be done, i.e. 100,000 widgets out the door. Which is what Jarhyn's point was.

 

[coloradoatheist]

A company is never that completely static, but changes that be looked at.

1) Outsourcing
2) reducing staff...asking more unpaid overtime
3) Mechaniing

What it does depends on several items.

None of which changes the work that needs to be done, i.e. 100,000 widgets out the door. Which is what Jarhyn's point was.

But how it can be done changes. And it varies depending on the business model. How many check-out clerks should there be at a grocery store?

 

[dismal]

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

A company does not "need to produce" anything. A company attempts to maximize profit. Depending on conditions, this can lead to adding or subtracting workers. Making workers more expensive at the margin tips you toward subtracting.

This is why the labor market is in a constant flux. This last sentence is not a matter of debate. It is an observable, verifiable fact.

If your view of the world is not consistent with a labor market that is in constant flux your world view must be wrong in some important way.

http://www.bls.gov/news.release/jolts.a.htm

 

[Nice Squirrel]

But if those 100,000 widgets need to go out, who is going to see that they go out?

 

[coloradoatheist]

But if those 100,000 widgets need to go out, who is going to see that they go out?

Some people. But the question of how many depends on the changes in inputs.

 

[dismal]

But if those 100,000 widgets need to go out, who is going to see that they go out?

The widget-maker elves will harness the unicorn power if need be.

Of course in some versions of the universe there are factors that affect how many widgets "need to get out" and how they are gotten out. One of which if the cost of the labor to get widgets out. Which cost being higher at the margin causes people to either desire to get fewer widgets out or find other ways (such as automation) of reducing the amount of labor needed to get widgets out.

 

[Jayjay]

Egad, how could someone possibly believe that. The labor market is in a constant state of flux.

If a company needs to produce 100,000 widgets how does wages affect the amount of work that needs to be done?

100,000 widgets have to ship independent of what the wages are.

Not if there isn't a demand for 100,000 widgets at a higher price necessitated by those wages.

 

[Ford]

The supplier of the bun? You mean McDonalds?

Or whatever the costs that come into McDonalds. I am not sure what percentage of their costs are their direct employee expenses.

If I remember correctly from my days as a restaurant manager, labor costs are maybe a third of the day to day operating expenses.